United States Supreme Court Issues Important Wage and Hour Law Decision

Wage and hour claims dealing with overtime requirements are among the most contentious in employment law litigation. The United States Supreme Court recently issued a decision exempting one narrow class of employees (“service advisors” at automobile dealerships) from coverage. While the specific effect of the ruling is limited, the reasoning behind it may signal a shift in the way the Supreme Court interprets the exemptions from overtime requirements in federal employment law.

The Federal Fair Labor Standards Act governs wage and hour issues for most employees in the United States. Generally speaking, unless an employee is an “exempt employee” she must receive minimum wage for all hours worked, and overtime pay at the rate of one and a half times her normal pay rate (known as “time and a half”) when she works more than forty hours in a week. Broad categories of employees are exempt, however. The major categories of exemptions are professional, executive and administrative employees. Many other smaller or sub-categories of employees are also exempt.

New Jersey’s Wage and Hour Law provides similar coverage for New Jersey employees, who receive protection under both state and federal law. Both laws also prohibit retaliation against employees who file complaints about violations (although there are technical requirements about what constitutes a “complaint”), and both require the employer to pay the employee’s attorneys fees if she prevails in a lawsuit. The main difference is that the Fair Labor Standards Act provides for double damages if the violation is “willful” – this means that if the employer willfully underpaid the employee by $1000, it must pay her $2000 in damages plus reimbursing her for her attorneys fees. The New Jersey Wage and Hour Law, on the other hand, does not provide for double damages.

The United States Supreme Court recently issued an employment law decision on one of the subclasses of exempt employees. While the decision itself affects a relatively narrow (although nationwide and fairly numerous) class of employees, automobile dealership “service advisors,” the decision has implications for the direction which interpretation of the FLSA exemptions may be taking nationwide.

In the case of Encino Motorcars, LLC v. Navarro, the Supreme Court interpreted section 213 of the Fair Labor Standards Act, which governs exemptions to the Act, specifically section 213(b)(10)(A). This had originally provided that all employees of automobile dealerships were exempt from the overtime requirement. However, in 1974 it was amended to provide that the exemptions include “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers.” The United States Department of Labor had issued regulations providing that service advisors are exempt in most cases, and Congress made no effort to amend this portion of the Fair Labor Standards Act to provide otherwise. In 2011, however, the Department of Labor issued a revised rule which excluded “service advisors” from being included as exempt “salesman.”

In 2012, Hector Navarro and other service advisors sued their employer, Encino Motorcars, LLC for overtime they claimed they should have been paid under the revised regulation. Encino moved to dismiss their lawsuit and the trial judge agreed. They appealed and in 2016 the Supreme Court found the rule was procedurally defective. However, the Court did not decide whether the language of section 213 itself exempted service advisors. It remanded the case, and the Ninth Circuit Court of Appeals determined that Congress did not intend for section 213 to make service advisors “exempt.” Encino Motors appealed, and the Supreme Court again addressed the case. This time, it squarely held that service advisors were exempt under section 213 from the overtime requirements of the Fair Labor Standards Act.

Service advisors are not “salesman, partsman or mechanic.” They do not sell vehicles, fix vehicles or order parts for vehicles. However, Justice Clarence Thomas, writing for the five justice majority, decided that service advisors were employed by a “nonmanufacturing establishment primarily engaged in the business of selling such vehicles.” He also wrote that a service advisor was “obviously a salesman” in a broader sense. They solicit and suggest services for the automobiles. Likewise, Justice Thomas wrote, while they don’t order the parts or fix the vehicles themselves, they are “primarily engaged in… the servicing of automobiles” because they meet with customers, recommend and sell services, which requires the ordering of parts. Therefore, even though a service advisor is not a “salesman, partsman or mechanic,” he has the characteristics of all three. Therefore, the Supreme Court held, service advisors are exempt from the Fair Labor Standards Act’s overtime requirements under section 213.

Justice Ruth Bader Ginsberg wrote a dissent, which the three other justices in the minority joined. Justice Ginsberg noted that there are many types of employees in car dealerships, and since they support the dealership’s purpose they are all “involved” to a greater or lesser degree in sales, parts and/or servicing. However, Congress chose to limit the employees at automobile dealerships who fell outside the Fair Labor Standards Act’s overtime requirement, reducing it from all employees at dealerships, to make only salesmen, partsmen and mechanics exempt.

While Justice Ginsberg was right – it takes considerable intellectual contortions to turn a service advisor into a salesman or mechanic – the decision is more troubling for the trend it portends. In this case, the Supreme Court stretched to increase the number of employees who were exempt from the Fair Labor Standards Act’s over time requirements. However, it has been a general premise that exemptions under the Fair Labor Standards Act are always interpreted narrowly to give employees the maximum coverage of the Act’s minimum wage and overtime protections. Without any act from Congress, the Supreme Court limited the Act’s protections. While the reach of this decision may be somewhat limited, the trend is troubling.

Our employment law attorneys represent employees and employers in wage and hour litigation. Call us at (973) 890-0004 to schedule a consultation with our employment lawyers. We can help.